Commentary: Discounter positioned to claim share once economy eases

The Minneapolis-based retailer posted a decline in profit and same-store sales for the fiscal first quarter, and in the understatement of the day, referred to the current economic environment as "challenging." See full story.

It used to be enough to have cute clothes and accessories, unique house wares, food and general merchandise at low prices. But now it's losing shoppers to more promotional retailers. In a way, Target is a victim of its own success. It made its name selling discretionary merchandise, which is higher margin than basics like groceries, and now those "extras" are out of fashion and the retailer isn't seen as a go-to place for bargains.

Part of this is image. Target's prices actually are lower than many of its rivals, but it's seen as being a higher-priced alternative to Wal-Mart Stores.

But it's also got a problem with its consumer. Traditionally, Target attracts a higher-income shopper than its larger rival Wal-Mart
WMT, -0.93%
but headwinds like slumping home values, rising food costs and soaring gas prices have made seeking out rock-bottom prices something of a national pastime. So low-end shoppers have already been shopping at deeper discounters and now the mid-level shopper has fled.

Meanwhile, a survey by the International Council of Shopping Centers showed that 67% of consumers were trimming spending either considerably or modestly. About 62% are cutting back on clothing and shoes and 51% on consumer electronics, all big departments at Target stores.

Once the economy eases, Target
TGT, -2.37%
is going to be sitting pretty. Its discretionary merchandise is what makes the chain stand out, and Wal-Mart has so far been unsuccessful tapping into this niche. Target's clothing, home decorating and its exclusive brands have been successful draws. These are areas where Target's coveted higher income and well-educated consumer will start spending again, however cautiously.

-- Angela Moore, U.S. commentary editor

Want this type of analysis sent to your inbox? Subscribe to MarketWatch's free MarketWatch First Takes newsletter. Sign up here.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.